Investing in bitcoins by buying bitcoins means choosing an exchange, funding an account, holding the bitcoins, worrying about the security of the bitcoins being held by whatever exchange you've chosen or the security of whatever computer you're holding them on...
Investing in a bitcoin ETF means clicking a buy button in your online brokerage account. You invest with minimal effort and minimal risk aside from your investment losing value. Someone else -- a regulatory system and set of agents acting on your behalf -- takes on all the responsibility for enacting and securing your investment.
The non-market risks of bitcoin are a lot more substantial than you seem to think they are.
If you're just investing, why should you have to become a crypto expert just to make sure eastern European teenagers don't copy a keyfile from your computer entitling them to $500k in bitcoin?
One additional advantage that hasn't been mentioned is that ETF's offer an options market allowing owners of Bitcoins to buy puts to protect the value of their bitcoins (or) buy calls to take advantage of future movements in the price of Bitcoins.
In my opinion allowing Bitcoin ETF options might be the next step in allowing widespread Bitcoin adoption because corporate entities can hedge against the fluctuations in the bitcoin exchange rates.
That's technically not true. Options would enable you to hedge your equity position in the trust.
The trust is designed to "reflect the performance of a weighted average price of Bitcoins." The degree to which it does this accurately is yet to be determined; tracking error is a real problem with some ETFs.
Bitcoin has proven to be subject to extreme volatility, the trust may not achieve its investment objective, the options market (if one becomes available) is unlikely to have significant volume and all of the other risks associated with options trading would apply.
If you want to hedge against the loss of value of your bitcoin holdings, your best option today is to pare your holdings and realize gains (if you have them). I wouldn't expect that to change for the foreseeable future even with financial products that you can access as a retail investor.
>The trust is designed to "reflect the performance of a weighted average price of Bitcoins." The degree to which it does this accurately is yet to be determined; tracking error is a real problem with some ETFs.
How so? If you guarantee (by holding the assets in trust) that [a larger number of shares] can always be redeemed for their corresponding ETF assets, then the possibility of arbitrage ensures that the ETF price tracks the net asset value per share.
For example, the ETF could buy 50,000 BTC and issue 500,000 shares, with the proviso that anyone can present 50,000 shares to the fund in exchange for for 5,000 BTC.
So I don't think tracking is the problem, but rather, just avoiding being "too clever" with how you ensure NAV = ETF share price.
As someone outside, I have the impression that buying bitcoins is a bit of a pain, plus once I have them I have to keep track of them.
Buying into the market through my already existing brokerage account is much more user friendly especially for non tech people. Bitcoin value is highly speculative at this point, and that means a lot of people will be wanting to get a piece of the action without really understanding how it works. Asking why they don't just buy some directly is kind of like asking why you'd buy a gold ETF instead of buying gold.
Small retail investors that see Bitcoin in WSJ, FT, etc. sit around and say "Hey! I want some of that," and their neighborhood financial planners don't know enough about it (and are not incentivized) to get them to directly buy Bitcoins. An ETF would give exposure to Bitcoin to these Baby Boomer retirement types, of which there are many.
Because that would allow larger, regulated funds (like pensions and university endowments) to invest in them, as they're generally restricted to securities listed on credible exchanges.
Good news for bitcoin owners, as that means more potential buyers and thus a higher price.
I am a bit worried though, about workers who may lose out because a manager got too caught up in the hype.
Buying shares on a publicly traded and regulated market (like NYSE), through your usual stock broker, would be a lot safer and more convenient for many investors than the current options available for investing into bitcoin. You don't have to worry about the unreliable exchanges, and semi-shady payment processors like Dwolla.
What about Dwolla comes across as semi-shady? I ask because I have an account with them, and so far they've treated me well - especially compared to the credit card alternatives.
